Mason Hawkins

Mason Hawkins

Last Update: 10-11-2016

Number of Stocks: 28
Number of New Stocks: 4

Total Value: $9,681 Mil
Q/Q Turnover: 5%

Countries: USA
Details: Top Buys | Top Sales | Top Holdings  Embed:

Mason Hawkins Watch

  • Longleaf Partners Comments on CEMEX

    Our position in the convertible bonds of CEMEX (NYSE:CX) declined 12% in the quarter and 21% since we bought the position in the third quarter. The price declined due to weak Latin American currencies, challenged trends in some emerging markets, and a general sell-off across the entire non-investment grade bond sector. We believe CEMEX’s assets are worth roughly twice the debt, which provides generous asset coverage. In addition, we receive a yield component and the opportunity of longer-term upside over par value through the convertible feature as EBITDA growth and debt reduction drive the underlying equity value higher.


  • Longleaf Partners Comments on EXOR

    Also contributing to performance, Italian holding company EXOR (OTCPK:EXORF) appreciated 5% in the quarter, taking full year returns to 12%. Over the course of the year, Chairman and CEO John Elkann, together with Fiat Chrysler Auto (FCA) CEO Sergio Marchionne, took numerous steps to drive value growth. The company sold or spun assets at a strong price, including an $893 million initial public offering (IPO) of Ferrari—well above expected value, the sale of Cushman and Wakefield to DTX for $2 billion—a more than 30% premium to our carrying value for the business, and the recently announced sale of its 17% stake in Banijay for €60.1 million—a €25 million premium to book value. Management reinvested proceeds into high quality assets at a fair price. In the second half, EXOR announced the acquisition of Bermuda reinsurer PartnerRe to be completed in the first quarter of 2016 and increased its long-held stake in The Economist. At FCA, Sergio Marchionne publicly called for auto industry consolidation, potentially positioning EXOR for discussions to merge FCA with another key player.


  • Longleaf Partners Comments on CK Hutchison

    Another top performer, CK Hutchison (HKSE:00001), a conglomerate comprised of the non-real estate businesses from the June merger between Cheung Kong and its subsidiary, Hutchison Whampoa, returned 22% during 2015 when combined with Cheung Kong Property. The corporate transaction helped remove holding company discounts and clarify business line exposures by splitting the property business (Cheung Kong Property Holdings) from the non-property business (CK Hutchison Holdings). The transaction is likely to be viewed as a seminal event leading to improved governance and structure for other complex conglomerates in Asia. In the fourth quarter, Cheung Kong Property was a modest detractor, down 10%, as poor sentiment towards real estate and China lowered real estate prices in Hong Kong. Hong Kong property stocks remained sharply discounted versus the physical property market. Cheung Kong, among the largest property companies in China and Hong Kong, has a large, low cost land bank in China and a strong balance sheet, positioning the company to exploit short-term market disruptions for the benefit of long-term investors. Chairman Li Ka-shing and his son, Victor Li, have demonstrated a track record of building businesses, compounding NAV at double-digit rates, and buying and selling assets at compelling values.


  • Longleaf Partners Comments on Colt Group

    Colt Group (COLT), the British- based provider of business communications and information technology solutions to companies primarily in Europe, was up 40% for the year, making it among the Fund’s largest contributors. We sold the position when the company was acquired by Fidelity Investments in the third quarter. Our investment in Colt, beginning in the second quarter of 2014, produced a 27% annualized return for the International Fund.


  • Longleaf Partners Comments on Baidu

    Baidu (NASDAQ:BIDU) was added to the portfolio in the second half during the China market panic, and the strong fourth quarter rebound, up 38%, resulted in the stock also being one of the strongest contributors for 2015. Baidu is the dominant internet search provider in China with 71% market share of PC and mobile search page view and revenue share over 80%. Its online search business grows at 30% per year with 50% operating margins and sells at a single-digit FCF (free cash flow) multiple. The company only focuses on Chinese language search, mastering the subtleties of its domestic market. During the fourth quarter, in the large and fast-growing online travel space, Baidu swapped its 45% stake in Qunar for a 25% stake in Ctrip. Together with Ctrip’s 37.6% stake in eLong, Ctrip will control 80% of online domestic travel booking revenues, which should lead to more rational competition and improved economics. Through this transaction, Baidu vastly improved its position to become the largest 020 (online to offline) travel platform in China. Furthermore, Baidu will de-consolidate loss making Qunar and provide more clarity to the underlying economics of the core search business. Separately, Alibaba’s offer to privatize online video company Youku Tudou during the quarter helped validate the conservatism in our appraisal of Baidu’s 80% stake in online video business iQiyi.


  • Longleaf Partners Comments on Adidas

    After announcing another strong quarter of double-digit organic growth for its core adidas (XTER:ADS) brand, German-based global sportswear and equipment brand adidas returned 22% in the quarter and 43% for the full year. The brand’s strong positions in Europe, China, and Latin America drove growth. The company expects 2016 operating income margins to meet or exceed 2015 levels and overall sales to increase at high, single-digit rates in the next year. Despite the stock’s strong performance, we believe adidas remains discounted due to strong value growth and has significant additional upside. As discussed in previous quarters, we have had constructive engagement with management and the supervisory board and have seen many positive developments. In addition to authorizing a 10% share repurchase program, the company made managerial changes in the U.S. business, sold its non-core Rockport brand at a price above our appraisal value, and announced it is exploring strategic options for its golfing brands and hockey division.


  • Longleaf Partners Comments on Melco

    As mentioned above, Macau casino and hotel operator Melco (NASDAQ:MPEL) gained 22% in the fourth quarter but remained among the Fund’s largest detractors for the year, down 31%. The stock benefited from improved sentiment regarding Macau during the quarter among indications that the higher margin mass market is stabilizing. In addition to relaxation of transit visa, the Macau government softened its stance on the smoking ban on the gaming floors. While Beijing will continue its anti-corruption campaign (which has hurt VIP business in Macau), the mass-focused infrastructure spending (high speed trains, ferry terminal, bridge from the HK airport, light rail) continues unabated. More than 90% of Melco Crown’s earnings before interest, taxes, depreciation and amortization (EBITDA) comes from mass business, where margins are 4X that of VIP business. Melco Crown opened its new mass-focused casino Studio City in late October, which helped increase market share in the all-important mass segment. This $3.2 billion project (relative to Melco’s market cap of $9 billion) has just started generating cash flow. We expect Studio City to receive an additional 50 table allocation in early 2016 in addition to its initial 200 table allocation. With a strong balance sheet, increasing EBITDA, and declining capital expenditure profile, the company is well positioned to buy back shares or buy out minority owners of Studio City. Melco International CEO, Lawrence Ho, bought about $25 million worth of shares in the fourth quarter.


  • Longleaf Partners Comments on BP Properties

    BR Properties (BSP:BRPR3) appreciated in local currency, but the weak Brazilian real made the company a substantial detractor in USD. Despite a strong rebound across our Macau gaming companies in the fourth quarter, Melco International remained a top detractor for the year. While we believe these portfolio exposures offer more substantial discounts and greater potential upside than the index, the negative performance masked the positive progress across the majority of our businesses in the year. Weak currencies and stocks that are substantially discounted can change direction quickly, and we believe these investments will ultimately provide solid returns.


  • Longleaf Partners Comments on Empire State Realty Trust

    In the last quarter we exited Empire State Realty Trust (NYSE:ESRT), which owns the Empire State Building as well as other properties in the New York metropolitan area. After making 44% in our two-plus year holding period, the price approached our appraised value. We are grateful to our partner, CEO Tony Malkin, and wish him continued success.

    From Longleaf Partners Small-Cap Fund Commentary for 4th quarter 2015.


  • Longleaf Partners Comments on Scripps Networks

    Another detractor for the year, media company Scripps Networks (NYSE:SNI), which owns cable channels including HGTV, The Food Network, DIY, Cooking, and the Travel Channel, declined to -25% in 2015 despite rising nearly 13% in the fourth quarter. Scripps fell sharply in the third quarter along with the rest of the media industry after Disney acknowledged ongoing challenges in the pay TV landscape, and many peers followed with disappointing ratings. Scripps, unlike most of its media peers, creates and owns valuable content that attracts a specific loyal, upscale audience. For this, Scripps channels receive an advertising premium versus other, less differentiated channels. Scripps also is underpaid by distributors for the ratings points it provides. The final difference versus peers is that Scripps is much earlier in its international expansion and therefore has money-losing yet valuable international properties not credited in a simple earnings multiple. During the year the company acquired TVN, a Polish media asset that has created confusion regarding Scripps’ international expansion plans. The company’s much larger free cash flow than reported earnings makes industry price-to-earnings (P/E) ratio comparisons somewhat meaningless.

    From Longleaf Partners Small-Cap Fund Commentary for 4th quarter 2015.


  • Longleaf Partners Comments on Triangle Petroleum

    Also previously mentioned, Triangle Petroleum (TPLM), a Bakken-focused E&P company with an internally developed oil services business (RockPile) and a joint-ventured pipeline business (Caliber), declined 62% for the year after falling 22% in the fourth quarter. Triangle’s integrated strategy provides a cost advantage in North Dakota where there is little infrastructure. Management has shown discipline in a challenged environment by announcing a 71% cut in capex without an offsetting production cut. Additionally, management bought shares personally and repurchased discounted debt at the company level. Late in the year, we swapped the common stock into bonds that were priced at a substantial discount to par, yielding 33% to maturity as of year end. This transaction provided a better risk-reward profile and offset some of the Fund’s realized gains.

    From Longleaf Partners Small-Cap Fund Commentary for 4th quarter 2015.


  • Longleaf Partners Comments on Graham Holdings

    A large detractor to the Fund’s performance in the fourth quarter, media and education company Graham Holdings’ (NYSE:GHC) 16% decline took its 2015 return to -11%. The stock price was impacted by broader weakness in the media industry and for-profit education where the regulatory and economic environment continued to be challenging. In the quarter, Graham Holdings’ Kaplan business reported worse U.S. student trends, and margins and revenue growth declined.

    From Longleaf Partners Small-Cap Fund Commentary for 4th quarter 2015.


  • Longleaf Partners Comments on HollyFrontier

    In the first quarter, amidst the market selloff of energy companies, we purchased HollyFrontier (NYSE:HFC), the independent petroleum refiner that owns and operates five U.S. refineries. The company owns plants in superior locations that allow for above-average margins. Additionally, management has a history of productive capital allocation. As a refiner, HollyFrontier benefits from the decline in energy prices which lead to more miles driven and increased demand for gasoline. During the year, CEO Mike Jennings bought in undervalued shares and focused on projects with master limited partnership (MLP) potential to cater to investors’ thirst for yield. This strategy, plus takeover speculation, helped the stock rise to our appraisal. HollyFrontier appreciated 55%, was among the year’s largest contributors to performance, and was sold in the third quarter.

    From Longleaf Partners Small-Cap Fund Commentary for 4th quarter 2015.


  • Longleaf Partners Comments on Vail Resorts

    Vail Resorts (NYSE:MTN), the largest owner of ski resorts in the world, gained 23% in the fourth quarter and 44% for the year, making it the Fund’s top contributor in 2015. So far in the 2015/2016 U.S. ski season, the company has posted strong pass sales (+13%), with price increases of 6% and higher units. With Vail’s strong financial position and positive operating cash flow (OCF), CEO Rob Katz reaffirmed the company’s plan to continue to return capital to shareholders via an increased dividend and share buybacks. The board recently authorized an additional 1.5 million shares for repurchase (roughly 4% of shares outstanding). Our appraisal of the company grew in the quarter and over the year.

    From Longleaf Partners Small-Cap Fund Commentary for 4th quarter 2015.


  • Longleaf Partners Comments on DreamWorks Animation

    A top contributor to the Fund, film studio DreamWorks Animation (NASDAQ:DWA) gained 16% for the year after a substantial 48% rise in the fourth quarter—an example of how quickly payoff patterns can move. The company had a box office success with the late March release of the movie Home, which continued to do well in home video and streaming. In December, DreamWorks announced a co-production deal with DHX Media, demonstrating that the company’s efforts to develop television content has progressed into recurring revenues. The New Media segment, which contains AwesomenessTV, had impressive revenue growth and margins. License renewals helped drive strong revenue and earnings growth in the consumer division. CEO Jeffrey Katzenberg’s push in the Chinese film distribution market via the 45% Oriental DreamWorks JV has potential for meaningful upside.

    From Longleaf Partners Small-Cap Fund Commentary for 4th quarter 2015.


  • Longleaf Partners Small-Cap Fund Commentary 4th Quarter

    The Fund’s six energy-related holdings in 2015 combined to account for the Fund’s negative return and relative underperformance of the year and dampened the otherwise strong absolute and relative performance in the fourth quarter. Although our oil and gas price assumptions have been wrong, we believe that CONSOL Energy (NYSE:CNX) could rapidly rebound with major asset sales and, along with Triangle Petroleum, will benefit when commodity prices correct as supply and demand eventually rebalance. At both companies, our management partners are taking action, including cutting costs, increasing financial flexibility, and selling assets to ensure the companies can withstand the difficult commodity environment. These two companies trade at a substantial discount to our appraisal and, we believe, offer greater potential upside than the index. However, the short-term performance masked the positive progress across the majority of our businesses in the year.


  • Longleaf Partners Comments on Murphy Oil

    In the fourth quarter, we sold Murphy Oil (NYSE:MUR), an E&P company with a portfolio of global offshore and onshore assets, after the stock declined 51% and was among the Fund’s largest detractors for the year. Following several disappointing drilling results and a lack of management plans for near-term ways to go on offense, we redeployed this capital into the high-quality franchise of National Oilwell Varco (NYSE:NOV).

    From Longleaf Partners Fund 4th quarter commentary.


  • Longleaf Partners Comments on CONSOL Energy

    Also previously mentioned, CONSOL Energy (NYSE:CNX), the Appalachian coal and natural gas company, was down 76% in 2015 after falling 19% in the fourth quarter as the company missed operating cash flow (OCF) estimates amidst declining coal and gas prices. Management is adjusting to lower commodity prices and adopted significant cost controls under zero-based budgeting while still growing natural gas production. We filed a 13-D during the third quarter to discuss with third parties as well as management and the board a potential monetization or separation of the valuable Marcellus and Utica gas assets. This has been a constructive process since filing, and we appraise these assets at worth demonstrably more than CONSOL’s total equity capitalization. CONSOL’s exploration and production (E&P) business is unique, with low cost reserves given the company’s fee ownership of many acres. CONSOL announced in the fourth quarter that its thermal coal business, which enjoys a low cost position, had contracted for 93% of production for 2016 at a confirmed price of $50-55 per ton, providing near-term downside coal business risk mitigation. Multiple directors recently purchased shares.

    From Longleaf Partners Fund 4th quarter commentary.


  • Longleaf Partners Comments on Chesapeake Energy

    As noted, Chesapeake Energy (NYSE:CHK), the second largest producer of natural gas in the U.S., declined 39% in the quarter and 77% for the year, making it the largest detractor of performance in both periods. Options accounted for 40% of our position and slightly half of our return. Fears related to further declines in energy prices drove the stock lower, despite CEO Doug Lawler’s progress in areas he could control. After reaffirming the company’s untapped $4 billion revolving credit facility and renegotiating a deal with Williams (pipeline operator), in the fourth quarter Chesapeake turned to restructuring its debt. Chesapeake offered to exchange various unsecured debt securities at a discount to par for secured debt with a later maturity. Pushing out due dates coupled with reducing overall debt outstanding should help the company weather a sustained low energy price environment.

    Over the year we adjusted our appraisal of Chesapeake to account for the tumble in oil and natural gas prices. Even with the depressed energy prices of today and little growth in that price as indicated by the futures strip pricing, the company’s non-producing assets have value that is not reflected at all in the stock price. Asset sale transactions in basins where Chesapeake operates helped validate our appraisal. We expect the company will continue to reduce costs while also seeking asset sales at fair prices. We are mindful of the risks associated with commodity companies. Once the debt restructuring was announced, we added to higher parts of the company’s capital structure that became particularly discounted.


  • Longleaf Partners Comments on McDonald’s

    During the quarter, we began exiting our successful investment in global quick service restaurant operator McDonald’s (NYSE:MCD) and completed the sale in the first week of 2016. The stock was a strong contributor for the year, up 31%, and the last three months, up 21%. When we initially purchased the company in late 2014, we believed management could overcome short-term obstacles and turn around same-store sales in certain struggling markets. Additionally, we saw optionality in the value of the company’s real estate assets. Over the course of our investment, McDonald’s hired a new CEO, Steve Easterbrook, a move welcomed by investors. His plan to revive the business both operationally and structurally helped drive the stock price. Although management and the board decided not to monetize the real estate assets, the stock price reached our appraised value in an unexpectedly short period. Over the year plus that we owned the stock, it gained 34% and was among the strongest contributors to performance. We appreciate the board’s and management’s solid execution. We hope that Mr. Market gives us an opportunity to partner with them in the future.

    From Longleaf Partners Fund 4th quarter commentary.


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